Saturday, October 11, 2008
In the midst of the intensifying global financial crisis, finance ministers and central bankers of the G7 nations – Canada, France, Germany, Italy, Japan, the United States, and the United Kingdom – met in Washington, D.C. and released a joint statement.
With failures of large financial institutions in the United States, the crisis rapidly evolved into a global crisis resulting in bank failures in Europe and the Americas, and sharp reductions in the value of stocks and commodities worldwide. The crisis further lead to a liquidity problem and the de-leveraging of world assets, which further accelerated the problem. The crisis has roots in the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2008.
After the meeting, a joint statement was released with a commitment to “stabilize financial markets and restore the flow of credit.” The statement outlined five steps to achieve these goals:
- Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
- Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.
- Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
- Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.
- Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
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“Central banks from around the world have acted together to provide additional liquidity for financial institutions, taking the necessary steps to support the global economy,” said US Secretary of the Treasury Henry Paulson in a statement after the meeting.
“We have taken a lot of actions,” said European Central Bank President Jean-Claude Trichet. “My experience of markets is that it always takes a little time to capture the elements [of the decisions taken].”
The Governor of the Bank of England Mervyn King said: “Central banks will work together as we demonstrated this week, to ensure sufficient short term liquidity is provided to stabilise banking systems. But it is also vital that governments work together to ensure their banking systems are recapitalised to enable them to lend to finance spending in the real economy.”